NPK International Inc (NPKI) 2004 Q4 法說會逐字稿

Good morning.

All sites are in a listen-only mode during the presentation.

With us today are Jim Cole, Newpark's Chairman and CEO, and Matt Hardey, Newpark's CFO, who will introduce the call.

Please go ahead Mr. Hardey.

Thank you very much, Tasha (ph).

Good morning and welcome to Newpark's fourth-quarter 2004 earnings conference call.

Copies of last evening's earnings release should be widely available.

If you don't have one, you can pick one up from our Web site at Newpark.com.

I must remind you, when you do take a look at that, to review the disclosures on Page 3 immediately preceding the financial tables, particularly with respect to the forward-looking statements that are embodied in the release and that may be made today in the course of our comments.

Let me also remind you that the results presented in this press release are unaudited at this date.

While the financial statement portion of the audit is in fact substantially complete and we don't expect any changes, the final components of the Section 404 testing are still being completed.

As such, there could still be a minor change or two.

We don't view anything out there as being material at this point and we cannot represent to you, until the 404 testing is finished, that everything is complete.

But that will be wrapped up very soon and I can tell you we do not anticipate any significant weaknesses in our first year, rather, under Section 404.

I'd like to point out just one or two things that were referenced in the press release last evening.

First, I think it is important that everyone note that, on fourth-quarter revenue of $114 million, Newpark's earnings before the effective of the non-cash items were right at $0.04 a share for the period.

For the year, earnings again without the non-cash items would have been about 7 million or $0.08 a share.

So from an operating perspective, we did see a decided run-up in fourth-quarter results and we were pleased to see that finally begin to show the momentum.

The larger of the 2 non-cash items reported was the impairment of the $3.4 million remaining balance of a $10 million original investment we made to obtain some waste processing technology back in the late '90s.

The company in which we invested recently suffered an adverse judgment in a patent case.

They have ceased operations as a result.

Though, our investment is collateralized we have recorded an impairment of that balance simply because it is difficult at this point to excess its recoverability.

The second non-cash item in the quarter arises from a change in the methodology we use to assess potential losses.

This is designed to align our procedures with what we would consider best practices under Sarbanes-Oxley 404.

This resulted in an $800,000 increase in the provision for doubtful accounts recorded in the fourth quarter.

With respect to the balance sheet, I just want to make one or two points.

You will notice that the working capital increase year-over-year was $12 million and that inventory represented 9 million.

It was the most significant change in the working capital equation.

That change is principally related to the increase barite ore we have either in stockpiles or in transport here.

In 2005, we expect to consume about 650,000 tons of ore, which is double what we ground in 2003 just 2 years ago.

This is simply a result of the increased demand for it in our drilling fluids operations and the long-lead nature of logistics, because that product is sourced overseas.

Our working capital efficiency across the year improved I think fairly significantly with fourth-quarter revenue change comparing '03 to '04 increasing 20 percent supported by only a net $3 million change in working capital net of barites logistics issue.

At the same time, Accounts Receivable change was virtually 0 and as the collection cycle dropped by 16 days to 81 days, which we consider to be reasonable for the type of business we are involved in.

We ended the period, 12/31, with $39 million drawn on our $85 million revolver, a $19 million letter of credit outstanding and so considerable room in that facility.

Long-term debt to capital at year end was in the 36 percent range.

We do expect, based on our view of 2005, that we will generate somewhere in the neighborhood of $45 million of free cash flow that is available for investment in new business opportunities or debt reduction as it becomes appropriate.

Of course, that number is before the effects of the new water treatment business that Jim will be talking to you about today.

So with those comments out of the way, I'll turn the call over to Jim for his comments on operations.

Thanks, Matt.

I'm going to spend my first couple of minutes talking a little background which will I think set the stage for what we expect in 2005.

Prior to 2001, Newpark began a diversification program which was absolutely necessary to reach 50 percent of our revenues from new markets and products away from our historic Gulf Coast base.

The basically and the one time that historic Gulf Coast base was in excess of 90 percent.

So we were very let's say risk-prone tied to a major market in the Gulf Coast.

Interestingly, that was the largest service market in the world so it was always a happy place to be servicing.

In the last 3 years, we have climbed the ladder, so to speak, and have achieved a 50 percent -- or we have achieved that original strategy of 50 percent of our revenues coming from new products and services which diversified us away from that historic base.

Now, that base market, which is in and Gulf Coast, is inland water, Louisiana land, inland and offshore, which we thought was a mature market has really surprised us over that period and declined by 35 percent.

That's when you had a 40 percent increase in the rig in the rest of the United States.

So like we always say, you can look forward but you never can see everything.

So what we found ourselves in, as we were diversifying out of this market, we had to reshape, or as you say in the saying in warfare, we had the second front (ph) to fight.

We had to resize, over the last 3 years, the Gulf Coast, Environmental and Matting businesses at the same time as we were diversifying in new markets.

The impact of this can be shown very clearly in those 2 historic businesses that earned only $6 million EBIT in the most recent year, 2004, down from $30 million in 2001, an 80 percent reduction or about $0.20 a share.

It isn't all that bleak because we're going to talk about the good news but today, after a 3-year effort of resizing the organization, personnel, the cost structures, inventories and logistical support, we have sized that business down to levels that would -- make it much more profitable at 2004 levels.

So we are ready to begin the result of that in 2005.

Now, as we enter 2005, there's a bit of a happy tone this because not only are we restructured for the market, activity is now beginning to increase in this Gulf Coast market.

Current activities are currently improved in the market by 12 to 15 percent over 2004 levels.

That's right out of the block in 2005.

Say it another way, at long last, rigs are entering the market, not exiting it.

We see that in offshore, Inland and on land.

In addition, with the improvements that we are experiencing in the new markets and an anticipated improvement in the Gulf Coast market, we believe that basically 2005 will be a very interesting recovery year as Newpark goes forward.

I will discuss those in each of the business segments.

I'm headed for the business segments.

I'm going to start with Drilling Fluids.

The significant points I'd like to make about Drilling Fluids are very simply 2004 revenues increased by 27 percent for the total Drilling Fluids business over the prior year.

The U.S. activity was up by 44 percent.

That's on a 12 percent increase in rigs.

So you can see that we did a little better than just (indiscernible) the rig chain.

We basically had about 2.5 times more market penetration than we did just writing (ph) rigs.

The U.S. rigs increased from 111 in 2003 to 160 rigs or a 44 percent increase.

Just to carry that a step further, the average rub of rigs in the U.S. was 160 for the year of 2004 -- 175 -- these are Newpark Drilling Fluids rigs serviced -- 175 in the fourth quarter and currently 182.

I believe you'll see increases from the 182 as we continue to penetrate the market in 2005.

Just for those that say, well, you can get rigs but you give something away, our gross margin held steady during this growth.

So, we did that in a period of time when many of the commodity products like barite substantially increased and we did that with a better mix of products.

So as we go into 2005, let me talk about position.

We are continuing to penetrate the market and feel that, without disrupting our profitability or margins, we will continue to do that.

We are currently implementing a 5 to 6 percent price increase that will show up more strongly in the second and third quarters but will also have some impact in the first.

We are basically positioned to strongly improve in Canada based on some very interesting new products that have proven to be very performance -- great performance in Canada.

Our foreign operations in Europe will begin to show some very significant improvements.

In 2003, which seems like a long time ago, we had a 5 percent EBIT margin in that business.

In 2004, we had 8 percent and in 2005, we project at 12 plus.

What we have done is we have made the investments to put the facilities in, we have position ourselves -- like they would say in Louisiana, let the good times roll.

I think we are going to show a significant improvement in this business in 2005 and it is coming.

Let me go to our second business segment in matting.

Over the past 3 years as I described earlier, we have sized the inventory, the structure, the trucking, all of the infrastructure to the market, particularly though in our rental Mat inventory which is today right-sized for the business as we go forward.

That's probably our largest expense item in the maintenance and handling of that rental mat inventory.

The industry has also right-sized.

We would say a lot of that out of necessity.

Because of limited cash flow, we have 6 small competitors and they sized down substantially.

Complicating the story a bit is most of them, all of them use it wooden mats and wood is exceptionally difficult to get today, the hardwoods.

So we are at a point where new inventory is going to be difficult to get, inventory is down, and resulting in that basically is pricing.

In 2002 at $0.64 a square foot, that is our initial rental period.

In 2004, that advanced to $0.99.

We are already pressing at the $1.25.

At the same time, the market stirred and the average number of rigs a year ago were 30 rigs, 37 rigs in the South Louisiana market alone this year right now.

So we are starting to see rigs move back in, which will make this market a very interesting market going forward.

As we project forward into 2005, 2005 will have about $8 million lower cost structure than 2004.

So I think that the best way to improve your profitability oftentimes is cost reductions.

We have done it and you count on a good junk of the $8 million.

The pricing increase on 16 million square feet, which is last year's level, is worth about 4 million.

The improved -- one of the markets we have improved is taking the inventories that the Dura-Base rental fleet and moving it into non-oilfield applications around the United States.

We have grown that to what we project to be about an $8 million business this year from nothing a few years ago.

That will be another improvement.

The improved cost margin improvement on the Dura-Base matting will also add to that.

We have laid out a projection.

It is on our Web page of about $18 million in improvement off of a $4.4 million base the prior year.

I don't have to tell your that's about -- I don't know if I'll do my math right, but that's about a 4 times increase in profitability.

It's long overdue.

It is in position.

I'd like to tell you it all showed up in 2005, but it was through the effort in 2002, 3 and 4 and now it is payday.

I'd like to quickly talk about 2 major markets and tell you how this -- we believe there's still more growth in this business. (indiscernible) the Gulf Coast, but let me give a couple of other markets.

One is Canada. 7 years ago, we introduced matting to Canada to show people how to extend their working season beyond just 4 or 5 months to year-round.

I'd like to tell you that it took awhile.

I don't like to tell you, but it did. 7 years later from no mats being using Canada, which we introduced back 7 years ago, there are today 90,000 mats in Canada extending the working season.

The majority of those, I would say about 60-some percent of those mats, the Pioneer Newpark has introduced those.

That is a combination of wood, which works effectively in certain areas, and the Dura-Base.

It is the largest mat sales market for our Dura-Base mat.

It is a tremendous opportunity for the wood mats going forward for sales.

If you want to -- if you examine carefully the Canadian market, more people are now working to extend the working season.

They're moving further north, which is the further north they go, the more the mats are needed.

And the pipelines are coming.

That population of mats has a very high opportunity to increase and we are the principle suppliers of mats into that market.

So there is plenty of opportunity in that market.

The second market is -- second outside market is the U.S. non-oilfield.

It includes utilities, recreations, events, industrial applications, power plants, all sort of application.

Our rental revenue, that was nonexistent 3 years ago, will be about $8 million.

That doesn't sound like a lot until you look at the margin, the incremental margin, about 80 percent.

It is growing.

What occurs in that market as people use the mat and become comfortable with it, they begin to buy them.

It is about a third of the historic sales of mats came out of Canada and about a third of them have come out of the U.S.

They have been introduced by renting first generally and then they become comfortable and they buy them.

We are continuing to pick up new customers for rental and new customers for sales across the United States.

We introduce them by renting first.

Those are 2 principle markets.

There are others around the world but I wanted to just tell you that -- leave you the impression that the matting business is not pushing up against the ceiling in growth over the long pull.

The last is our Environmental business.

Historically in the Gulf Coast, we have had over 60 percent of the volume of waste.

It has been hit hardest because its number one market is the offshore and secondly the inland barge market, which had been hit harder than any of the other markets.

But the good news is they are upticking today.

Currently, we are up 13 percent in rigs over 2004.

The average offshore rig last year was 21,000 barrels.

So every rig, our share, which is the dominant share, we've got $20,000 (ph) per rig -- 21,000 barrels per rig for the year.

In the inland barge market, we hit about 75,000 barrels and currently we are up about 11 rigs almost equally divided between the 2, somewhere between 4 and 500,000 barrels uptick.

It will begin a recovery and we will see that show up in EBIT.

It won't be as pronounced as either the Drilling Fluids or the matting, but it will begin to turn the tide in profitability.

The last part of Environmental -- and because we have been a -- we are known in many quarters as the environmental company to the oil industry, we were introduced about a year and a half ago to a new technology.

It has been used in foreign operations.

We've announced that we've set up a company called NEWS.

We call it good news -- Newpark Environmental Water Solutions.

I'll just describe this in layman's terms.

It is total (ph) chemistry and some people would call it nanotechnology, meaning very little.

And Happens is you are doing reactions to waste streams at the molecular or atomic level.

What happens, as I've been told -- I read the materials and we study it -- that the chemical reactions are not possible in processes are made possible at that level.

The heat and the pressures are so magnified that you can make changes, chemical changes at that level.

This is what -- the partner that we're working with has established this technology over 20 years.

Business Week recently had an article that said this is the coming technology.

This pioneer has been using it for about 20 years and has over 20 processing plants in foreign markets.

They are very significant.

So, we're not talking about somebody coming out of a garage with a technology.

We're talking about a field tested technology which we are introducing into the North American market as we speak.

Our first application was in Jonah-Pinedale.

Within about 30 days, we should receive what we believe is the first commercial received discharge produced water in the Colorado River Basin up in the Jonah-Pinedale market for beneficial reuse.

That facility is up there.

We're working on the final steps of a permit that -- it's still interesting when they're permitting something that they've never done before and taking bad water and making it good in an area that can use the water.

Secondly, we have announced the first coalbed methane in the Powder River for Anadarko.

It should be online sometime between April and May.

We feel that this will be a very large potential market in the de-watering of coalbed methane and taking that bad water, which has been environmental problem, and creating an efficient product out of it -- good water.

The third market are oil sands in Canada.

This is the largest market.

We have been visiting with them, have defined specifications for waste streams.

Basically, we're scheduled for the second quarter of 2005 to take a mobile unit up and do testing of this new market.

I will just say the reason that is those significant is the volumes of water are so large and they also -- the water is hot and we could say the btu equivalency by giving it back hot to their boilers.

That has value in doing that.

There are other markets but those are the 3 we are concentrating on and hope, by 2005, to have planted a flag in each one of them.

In conclusion, we have reshaped the Gulf Coast businesses of Newpark.

It's been an ugly, hard fight and the results of the last several years have demonstrated that.

We see the Gulf Coast upticking in activity.

We are penetrating the other U.S. and Canadian markets with Drilling Fluids and matting and environmental.

We anticipate much stronger 2005 results.

We are bringing a very unique proven proprietary technology to solve major water problems in the industry.

With that, I think we'll open it to questions.

Let me just say, before we do that, that comments that we have made today are consistent with the presentation that Jim made in San Francisco about 2 weeks ago that is posted on our Web site.

I would suggest to any of you who are curious and haven't seen it yet that you need to download and take a look at that presentation that lays out the keys for most of these markets.

With that, Tasha (ph), let's move forward with the Q&A.

(OPERATOR INSTRUCTIONS).

John Tasdemir.

Nice improvement from the third quarter.

Drilling Fluids obviously looks to have continued a trend up and pretty significant growth potential there.

I think that is the easiest one to kind of look at.

The mat business, there are a lot of things that you're doing there; it's a little harder to get my arms around.

One of the things you have mentioned is the $8 million in cost savings.

Can you tell me how that kind of gets layered in throughout the year?

Is it -- you start to see -- I guess just kind of explain that more to me so I can figure out how that works into my model?

Okay.

I would take the months of January through July and where we would -- let me see if I can do this quickly.

The last 5 months of the year will have about $500,000 per month of improvement.

There's about 2.5 million of the 8 million will come at 500,000 a month in the month of August, September, October, November, and December.

That is a run-off of inventory that we did not write off;

We just played it out and it's at the end of its statutory life.

But we're not replacing it.

So that's an excess, but even though it's being used, we don't need to replace at that level.

So if you took the 8 million and took the remainder of those let's just say the -- say you took 8, which is a proper number, and you took 2.5 out of that, you'd have 5.5, divide the rest of it equally across the year.

That the depreciation savings?

That the depreciation savings.

The 5.5 is -- (Multiple Speakers).

The 2.5 is.

Okay.

The 2.5 is, at the last, is the common depreciation savings.

The other 5.5 is what?

It's a whole array of items that are cost savings.

John, it's things like better efficiency in our purchasing side, going back and renegotiating contracts with suppliers and so forth.

Of outsourcing our tracking, cutting back equipment, shaping, reshaping the business, which we did over the last year.

So kind of getting into that, I guess you start to see some of that cost-savings happen in the first quarter and then more in the second, more in the third, more the fourth kind of a deal?

Right and you saw the cost actually dipping across last year -- we're cutting -- so we will see that.

The high point of our costs last year were approximately $5 million per month in that total Gulf Coast operation.

We ended the year at about 4.4, 4.5.

So we've already seen so that of but we saw some of it last year.

So we are giving you a net savings of 8 million, even though, if you took the high point to where we are going to end up, it would be more like 12.

But it's a ramping across the 2004 through 2005, the net saving about 8.

I think the way to calculate it is to take -- put backload in the last 2 quarters, 2 million in the third quarter and 1.5 in the fourth and then just divide the others equally.

Okay.

Then onto the waste disposal or the water treatment business, I guess -- I mea, we are probably still obviously in the very early stages.

I know you guys aren't really expecting much out of that this year, or at least -- (Multiple Speakers).

There's nothing in our numbers for water treatment this year.

Can you tell me a little bit about how -- I guess if I want to look at that, do I want to look at the number of units that you guys are putting out or the number of contract you guys are signing up or the volume of -- I mean, how is that going to -- how are you going to be charging for that?

Is it -- (Multiple Speakers) -- barrel or -- (Multiple Speakers)?

The way we do it is a per barrel charge.

We put minimums because of the capital in it but I would say that, as we go forward, we will probably monitor that on the numbers of barrels by type of waste that we create.

For instance, I think we will have better pricing out of the -- because of the btu savings in the oil sands when we are there.

There's a great need, so I think we'll be there.

Coalbed methane will be at a certain price.

Then the Jonah-Pinedale is a more pricey, but we will give it to you by barrels.

We will do it by barrels and then revenue or income by barrel.

Okay, so as we do it throughout the next year, we are going to be looking for -- just to try and determine the potential of this business, we are way to be looking for press releases that say, we've signed another contract with so and so, you know, for this area.

For your CapEx plans, how much are you dedicating to that business this year?

How many units are you going to produce?

Or is it all just kind of -- (Multiple Speakers)?

It's still contractual, but John, one of our -- our business model, which we believe can happen, is we are offering a solution that they are not achieving anywhere else.

We are not doing -- there's a lot of water technology out there that has been around for a long time.

They can do a whole lot of it.

That's not our market.

It's the high end of the market when you get into very difficult types of separations because we're not going to give this away.

Now , when we are solving a problem like that, let's say in the oil sands or in a more difficult area, we're asking companies to pay a capital fee at the beginning of the contract so we get a recovery of a good chunk of our capital in the contract.

So that is what we have been discussing with companies and thus far, we've had some receptivity in that.

Okay.

One more question and I'll turn it to somebody else.

Matt, what's your CapEx plans for '05?

John, excluding the water treatment assets, we view it to be about a 20 maybe a $20.5 million range for 2005 at this point, which is about flat with last year and about equal to our depreciation.

Okay.

Tax rate of 37 percent?

Yes ,I would use 37 percent on a go-forward basis.

Clearly we had an unusual tax rate in the fourth quarter but we don't expect that to recur.

Corey Greendale.

Just actually, Matt, following up on that last point, can you just give a little elaboration on the reason for the low tax rate in the quarter?

We had a number of reserves we had not looked at in quite a while and under 404, we did a scrubbing of that entire reserve base top to bottom and found a few things that were no longer supported and had to be taken back in the income.

Okay.

Sorry if I missed it but where did CapEx come in in Q4?

I don't have a Q4 number handy.

I know our total for the year was about 24 million.

So we would probably -- I think we are about 7 or 8 in the fourth quarter but I will call you back and I will confirm that -- (technical difficulty).

Part of that was a water treatment asset that we started putting on the books in the fourth quarter, about 2 million at that.

Okay.

A few questions on the mat business -- first of all, I'm sorry if I missed it, but did you give the number of mats sold in the quarter?

We ended up the year at 14.2, didn't we?

Right.

14.2.

I don't think we have the number sold in the fourth quarter.

It was less than -- (Multiple Speakers).

About 1700.

Okay.

Could you give us an update on how the non-oilfield markets performed in the quarter?

I know you mentioned earlier there was the potential of some electric utility capacity getting pulled down with the hurricane, but if you could just give us an update on what happened there?

The non-oilfield in the fourth quarter I think was about 1.3 -- (Multiple Speakers).

Multiple Speakers).

We were 1.7 million in the fourth quarter in non-oilfield rentals.

And we're projecting this year about 8.

Right.

Okay.

On the pricing, can you just talk a little bit on the oilfield pricing about kind of the reasons for your confidence that the pricing happens?

I know you said inventory is getting pulled out but you have been talking about that for awhile.

I know you had indicated last quarter that pricing looked like it was going to be a little stronger this quarter that it ended up coming in.

So just a little bit more color on kind of why you think now is the time (indiscernible) to see that?

Number one is that the inventories continue to tighten, activity is up, and frankly, I think that everybody's finally got a dose of good business-itis.

I think that we basically -- while we're about 60 percent of that market, we still have competitors, so we basically -- we are the leader in the industry, but we can't create that requirement for other people to -- base pricing but they are all going up now.

But they are out of inventory.

Scarcity is a great allocator and there is not really a major supply out there that is going to cause them to be able to over-inventory the market.

As long as Congress doesn't repeal the law of supply and demand on that one, Corey, we should be okay.

I don't think they have jurisdiction over that yet.

Not in this country.

Don't always been on it.

Jim, just to clarify -- the $1.25 kind of pricing you talked about.

Are you saying it's already there or you are kind of well on your way?

We were a little over $1 in the January and February, we will be around $1.25.

We are there.

Okay.

Then just quickly on the fluids business, can you just give a little more sense where you are in terms of the pricing initiatives?

How much of that has been rolled already and how that would come in through the year?

I would think that we are -- I've been trying to catch a handle on it.

What happens is you have your contracts that you had to renew and oftentimes you have to do that when there is a renewal point with one exception; right now I believe they have been revamped.

The last count I had, we were up about 50 percent like in the Gulf Coast market and we were a little over -- we were at about 5.1 percent in pricing.

Now that will roll in.

Not all of it is there in the first quarter.

I'd say that roll-in you'll see in the second and third quarter but then the one-off work, like when you -- that are not under contract, we are rolling those prices up at the same time on every well.

So I think that it's 5 to 6 percent.

I mean, I think at least 5 percent is realizable during the year.

However, remember this is a food chain -- the oil company, then you've got the service company, then you have the suppliers.

We are projected that we would net about 2 percent out of that.

We would like to get 3 but we have projected 2 percent net with the cost increases coming for our suppliers that supply us.

So across the Company that would earn, let's say generate $330-340 million of revenue, that's worth about $7 million bucks if we net 2.

We might do better because we believe that pricing -- we will have another round of pricing later in the year.

So we could do maybe a little better.

Thanks, that's helpful.

Then just one last one and I'll turn it over.

Could you give us an update on how AVA came in in the quarter?

I believe you were working on some changes there to try to improve their margins, etc.

Can you just give us a sense of where that stands?

Yes.

First of all, there's 2 things that have occurred at AVA.

They had some major contracts dating back into 2003 that were on -- the bills were paid in Euros and the dollars we received in dollars.

If you saw, I know you are all aware of the currencies split squeeze, that really defeated their profitability.

They are done with those now.

We are all euro-euro now, not a miscalculation of -- AVA made about I think 350,000 in the fourth quarter but they are substantially improved this year.

The other thing that has occurred is you are taking a company that a number of years ago we bought doing about 10 million a year and it increased to almost $40 million.

But also you had Sarbanes-Oxley come in.

So over the last couple of years, we have slowed the growth to put the systems in place and to comply with today's new regulations.

We are -- our controller is in the room with me and he is smiling and nodding.

We are almost there.

We are getting ready now for the next round of growth.

So I think, over the next several years, you will see the AVA in their markets begin to take a nice steady next round of growth, which would have been -- so I think that we are positioned very well to grow that market.

But we are in good shape with that business now.

(OPERATOR INSTRUCTIONS).

David Snow.

Most of my questions answered but you are looking for about a 20 percent volume gain in Drilling Fluids for the year?

Yes.

Then on top of that a price increase -- and the volume -- what type of margin contribution comes from the volume part of that?

I think that your operating leverage -- I think this new pricing and operating leverage and volume that you are going to get to from an 8 to 12 percent EBIT level (sic).

So I think that it is a combination.

If I isolate it, just completely isolated the pricing and said we had a net 2, you'd have $6-plus million in pricing.

You are going to get a lot more of that probably of the improvement in profitability; probably 75 percent is going to come out of operating leverage on the new volumes.

Okay.

You mentioned some new Drilling Fluids products in Canada.

Could you elaborate on those?

Sure.

With the DeepDrill, which has been our primary water-based system, FlexDrill and DeepDrill, one of the ingredients in that is called N100.

It is proprietary to this company.

We have a new oil system up there which we referred to as amanoil (ph); it's an oil -- amadrill (ph), excuse me, I'm getting help.

Amadrill (ph).

We have exclusive use of that oil.

But instead of using salt or calcium chloride as the internal phase to allow the proper chemical reactions needed, we replace that with N100.

The effect of that as we're drilling wells is about 30 percent faster using that product.

That's not one; that a bunch.

So this has been a consistent technological breakthrough using proprietary products that we use in a water-based system as the internal phase in an oil-mud system.

Let's say this -- it is catching on very rapidly in the Canadian markets because you can drill your wells about 30 percent faster.

Even the dull ones will catch that one pretty soon.

Is that something that you're already doing elsewhere or can it be transferred elsewhere?

We are looking at some of the markets in the Rockies when they want to use an oil mud.

We're looking at some other markets.

You can use that internal phase with both the synthetic and with a typical oil system.

We're looking at that in some of the European markets also but right now, you'll find there is a trend from going away from oil muds, but there's a whole 3 decades of people that have been using oil muds.

So we have a superior oil mud and a superior water-based system.

We are careful ruling it out because each market you go to, you have to be careful that you basically actually will get the results.

Canada was where it was developed.

There are other markets but we haven't really moved strongly into those markets yet.

We are using -- we are soon using it in the Rocky Mountain in the United States but we will be careful where we step because we want to be sure it performs properly.

(OPERATOR INSTRUCTIONS).

Byron Pope.

For the fluids business, you all tend to break down the regions, Gulf Coast, U.S.

Central, Canada and Mediterranean.

If you take a look at the fourth quarter, was there sequential revenue growth in each of those geographic areas?

Matt is looking that one up.

I'm looking just to be sure I can say this with authority.

The only market where there was sequential growth was the Central region, which was already running at 110 percent of capacity, but there was growth in all the level (ph) markets, yes.

Okay.

Then as we look forward to '05 kind of net to what percent?

Let me go back to -- the Central region includes the Rocky Mountains.

There is a seasonal decline we catch in the first and second quarter.

So sequentially, quarter-to-quarter, we anticipate the Rockies to slow a bit.

What's included in that mix are the Gulf and that Central region.

Okay.

Then as we look forward to '05, that 20 percent volume gains that you talked about -- would you expect the revenue composition to change much -- (Multiple Speakers)?

Let me take it by pieces.

Your biggest growth will come in the Gulf Coast because of activity and market penetration.

The second-largest growth sequence will come out of the Central region.

Give you an example of the gross of revenues -- in 2003, we did $59.5 million; we did 102 last year and we will be up about 20 percent this year in the Central region.

Then the third growth would probably be Canada and the fourth would be our Mediterranean market.

Right now, it appears that we have no further questions.

Well we appreciate all of your patience and joining us today.

We have set a very ambition set of goals for this year.

We'll stay tuned.

Thank you very much for joining us.

Bye-bye.

This concludes today's teleconference.

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Thank you and have a great day.